Shareholders of Fiserv would probably like to forget the past six months even happened. The stock has dropped 23.9% and now trades at a new 52-week low of $52.34. This may have investors wondering how to approach the situation.
Is now the time to buy Fiserv, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Fiserv Will Underperform?
Even though the stock has become cheaper, we’re cautious about Fiserv. Here are three reasons why there are better opportunities than FISV, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
Regrettably, Fiserv’s revenue grew at a mediocre 7.1% compounded annual growth rate over the last five years. This was below our standard for the financials sector.
2. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Fiserv’s weak 2.8% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.
3. Previous Growth Initiatives Haven’t Impressed
Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for financial firms. Over a long period, financial firms with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.
Over the last five years, Fiserv has averaged an ROE of 9.6%, uninspiring for a company operating in a sector where the average shakes out around 10%.
Final Judgment
We see the value of companies driving economic growth, but in the case of Fiserv, we’re out. After the recent drawdown, the stock trades at 6.4× forward P/E (or $52.34 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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